Analysts predict end to NSE bearish run

October 14, 2008
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, NAIROBI, October 14 – Economic analysts are predicting that the slump at the Nairobi Stock Exchange is about to end.

Standard Bank Group Chief Economist Goolam Ballim said on Tuesday that most counter prices had sunk to their lowest levels and were therefore unlikely to dip any further.

“What you are going to see on a 12 months basis is probably recovery but at the pedestrian level. I don’t believe you are going to get back to the high index values,” Mr Ballim noted at an economic forum in Nairobi.

The on-going global financial crisis has seen stocks shed 25 to 40 percent of their value worldwide following the problems on Wall Street.

Mr Ballim is predicting a grim outlook for the international financial markets and by extension the country despite the ongoing government interventions. He said the current economic downturn was likely to take two to three years to recover.

The economist said African business growth would be affected by the crunch because of a decline in purchasing power and demand from the developed markets. He observed the same would be reflected in a reduction of foreign direct investment, remittances, and portfolio inflows into the country.

“I fear that Africa may not see as much investment flows as it enjoyed over the last year,” said Mr Ballim, who proposed increased trade diversification especially into the emerging markets as a way of cushioning the economy from the negative effects of this slow growth.

Meanwhile Stanbic Head of African Research Yvonne Mhango said tourism and the construction industry would be some of the hardest hit sectors in the country as result of the economic crunch as they are highly reliant on foreign funds.

“Remember life for people in these countries is beginning to get very difficult and therefore the last thing in their minds is to either travel to visit a country in Africa called Kenya or for Kenyan citizens in the Diaspora to send money across as remittances, which in the last few years contributed a lot to residential construction,” Ms Mhango observed.

She further cautioned against the government’s intention to float a sovereign bond, saying it may not be the right time.

‘If the government was to proceed in issuing this bond probably the cost of capital is going to be a lot higher and the subscription a lot lower due to this risk aversion that investors have during this time,” she said. 

The analysts are predicting increased and strict governance in the financial industry by governments as a way of preventing the current situation from re-occurring.

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